California Appellate Court Affirms Dismissal of Claim Against Title Company and Title Agent, Holds That They Had No Duty to Inform Insured Purchaser of Seller’s Involvement in Other Lawsuits

The California Court of Appeals recently held that a title insurance company and title agent had no duty to inform their insured purchaser that the individual selling the property, and who was going to act as the insured’s property manager, was involved in multiple other lawsuits.  See Ukoha v. Provident Title Co., 2020 WL 3467817 (Cal. Ct. App. June 25, 2020), reh’g denied (July 15, 2020).  Plaintiff purchased an apartment building from a trust in 2005.  The individual who controlled the seller trust (“Behrend”) obtained title insurance for plaintiff from the defendant title agent and title insurance company.  After purchasing, plaintiff sent payments on her loan to Behrend, who was managing the property for plaintiff, with the understanding that he would forward them to the lender.  Instead, Behrend misappropriated the funds, and the lender took the property via a foreclosure in 2012.  In 2017, plaintiff sued defendants for breach of contract, fraud, and other claims, alleging they had been involved in multiple transactions with Behrend, knew that he was involved in at least eight lawsuits regarding his management of properties, and “were effectively his business partners.”  She further alleged that they “concealed” this information from her and, by not advising her of the risk of investing with Behrend, “falsely represented that she would receive marketable title and promised to pay benefits to her if she did not.”  Defendants moved to dismiss, the trial court granted the motion, and plaintiff appealed.

The Court affirmed the dismissal.  First, it found that there could be no breach of contract against the title agent because there was no contract between plaintiff and the agent.  Second, it found that plaintiff’s claims were not covered under the policy because the policy specifically excludes post-policy events, such as this foreclosure.  The Court also held that the title was not unmarketable:  “a title defect is some circumstance that deprives the seller of complete title to the property being sold. Behrend’s mismanagement of other property effected no such deprivation.”  Third, the Court found that defendants could not be liable for fraud because they had no interactions with plaintiff until after the sale, and they did not owe her any duties.  “A title insurance company owes the insured no duty of disclosure outside the policy.”  Accordingly, the Court found that the dismissal was proper.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, or Anthony Lombardo at alombardo@riker.com.